While walking, for example, in the historical or business center of Lisbon, it is impossible not to admire the architecture, the beauty of the narrow streets, and the incredible stone patterns on the sidewalks. And it is also impossible not to notice that there are often abandoned, boarded-up, graffiti-painted buildings among all this beauty. Most often, you can see a lot of abandoned buildings where the demand for real estate is lower, but for Lisbon and Porto, where it would seem that there is even a lack of propositions and the demand for real estate is not covered (we wrote about this in the article “Where foreigners buy and rent housing in Portugal”), this problem is also not uncommon. For example, the photo in the main picture shows three abandoned buildings on one of the most vibrant streets in the prestigious district and business center of the capital, Saldanha. You can find empty and bricked-up houses among fashionable buildings, banks, expensive jewelry stores, and buildings of international companies. Why are there so many abandoned buildings in Portugal?
The problem is not new. In 2010, the Spanish magazine El pais called Lisbon the "Capital of the Void". According to the article, Lisbon and Porto lead the EU cities that have emptied the most since 1999 and have the highest rate (24%) of residents over 65 years old.
Here we will talk about abandoned and empty residential buildings, but in Portugal, there are many other abandoned objects, such as churches, shopping centers, and palaces. Even urban researchers have appeared who find and take pictures of such objects. The most popular seems to be researcher David Taimanou, whose pictures you can see on his Instagram profile under the nickname Urbex.
Cityscapes with abandoned buildings can be found in many European cities, and we decided to find out the reason for this situation in Portugal. We did not even expect that a seemingly simple issue could hide so many nuances and even social aspects.
It is expensive to repair, and the maintenance of an abandoned building costs nothing, and there is time to wait for the best price on the market
For 2018, Portugal was considered the second country regarding the number of vacant houses. About 730,000 buildings in Portugal (more than 180,000 in Lisbon) are empty or abandoned. These statistics were calculated even before the coronavirus epidemic; whether it worsened the situation is unclear.
One of the main reasons that some Portuguese experts highlight is the country's various aspects of property inheritance.
For example, Portuguese laws do not tax the direct heirs of spouses (civil marriage is also considered), children, grandchildren, or grandparents). All others must pay a 10% inheritance tax. More information about paying taxes on inherited property can be found on the Portal of the Portuguese Tax Office. Such a situation, according to some experts, does not motivate new owners to repair the buildings and rent them out or live there, although such arguments seem far-fetched to many and are not capable of influencing the entry of such houses into the real estate market, but are only an additional attempt to expand the tax base.
It often happens that inherited property requires repair for further use. According to Portada, a statistical organization in Portugal and the EU, between 2011 and 2021, more than 220,000 houses appeared that require repairs, including major ones. Over some time, houses only deteriorate and become uninhabitable. And, to renovate an apartment, a house, and even more so, an apartment building, the new owners may not have a budget, especially during the backdrop of rising prices and economic crises in recent years.
Sometimes owners of buildings in the center of Lisbon and Porto keep houses empty to wait for favorable circumstances and try to sell them for a better price. However, while the owner is waiting for the best price, he may be missing out on potential buyers just because he did not make sure that he could be found. There are plenty of recommendations on the internet on how to find the owner of an abandoned building, indicating that such a problem exists.
Furthermore, there is information that if the data about the owner is not officially exposed, then it is impossible to obtain it from the city administration, as this is contrary to the Privacy Law. According to some authors, this complicates the search and provides a loophole for using real estate as bribes to officials. In many European countries, information about the owner and what kind of redevelopment he made in the building is in the public domain.
Is it worth the effort?
Consider the owner has the funds to renovate the building for its subsequent rent to an individual. It seems that there can be no arguments against not doing this, but there are some:
- The landlord must declare income to the IRS and pay tax from 10% (agreement for more than 20 years) to 28% (for less than 3 years) on income.
- There are also many other mandatory taxes, such as stamp duty, municipal property tax (IMI), and miscellaneous municipal fees.
- In addition, you should consider that the apartment may require minor repairs after each contract, and sometimes, you will have to repair / change equipment.
- It is challenging for a tenant to be evicted from an apartment, even if he is unable or unwilling to pay rent. Eviction lawsuits can take many months, during which an unscrupulous tenant can destroy property.
By the way, this is often associated with a large deposit amount, which is required by local landlords, and a great interest in your financial reliability. However, according to law, the deposit amount cannot exceed 3 months' rent, so homeowners have to look for additional ways to get a large amount of the deposit if they require it (sometimes the amount can reach 6 months or even a year).
On the bottom line, a long-term rental business may seem less attractive. Therefore, some property owners consider renting it out through services like Airbnb. But even here, owners can expect an unpleasant surprise. Firstly, tourists must obtain a special Local Accommodation License (Alojamento Local (AL)) to rent out real estate. But the issuance of these licenses in Lisbon has been suspended for an incomprehensible period.
Secondly, this type of business has been discussed for a long time regarding the need for more affordable housing for long-term rentals and the presence of empty real estate (owners often get licenses in reserve, and then decide not to do business). For this business, the government, under the “More Housing” (Mais Habitação) package of measures, proposes to introduce many steps that can stimulate the transition of real estate from the tourism sector to the long-term rental sector. It is expected to reduce tax rates for landlords, simplify the eviction procedure, provide state subsidies for non-payment of tenant bills, and tighten the field of tourist rental housing.
Read more here about the government's proposals, which will be considered until March 24.
Portugal has an Association of Local Accommodation in Portugal (Associação de Alojamento Local de Portugal (ALEP)), where you can find the latest industry news.
Inheritance with tenants
And sometimes, the heirs get not only the building itself but also long-term lease contracts that cannot be terminated. This problem is especially in the historical centers of cities. They may contain not relevant rates, and now, they do not bring any profit to the owner. This prevents further repairs to the building after the agreement's expiration, which usually occurs with the tenant's death.
The reason for this situation is mentioned by many as the Lease Law, which was passed back in 1941 by the Salazar government. At that time, when inflation was insignificant, the law was relevant. Landlords could set the price they wanted, which they had no right to change until the contract was terminated. They received a guaranteed profit, and tenants could calculate their expenses without fear of spontaneous eviction. People usually did not stay in the house for life. They changed apartments depending on their actual needs. Everything began to change in the 1960s with the first signs of inflation, but even then and now, the law has not been significantly updated. In 2006, the law was slightly adjusted. The rent could now be increased slightly if the house was habitable, but by then, this condition was no longer possible to meet in many areas. The old rent could not be increased much, as the government feared a “serious social shock”. Until now, there are apartments in such houses where the tenant pays 70 euros per month.
A hopeless situation sometimes leads to the fact that the owners are forced to damage the buildings (destroy the roof, settle pigeons, damage window frames) to be able to identify them as uninhabitable. After that, the building can be demolished (except for the facade), and the land sold for new construction.
The picture shows the central area of Porto at the groundwork of the famous bridge Luis I.
Transfer of commercial real estate to residential
Given the great pent-up demand in the housing market, some commercial property owners are considering changing the license type. But the process is not easy, and no one can guarantee 100% success since the municipal councils that deal with such cases have significant freedom to decide at their discretion. First of all, the suitability of the building for residential purposes is considered.
Oddly enough, the complexity, high cost, and time to convert commercial real estate to residential have been named by some Portuguese as one of the reasons for many empty houses in the country.
The government's new proposals also mention simplifying the procedure, but the details and how this will be implemented in practice still need to be clarified.
We found an interesting article on the idealista website about how people in different parts of the world turn commercial and other real estate into residential buildings and apartments, such as churches, factories, and barns.
The deadlock in the negotiations of the heirs
People often find it difficult to reach an agreement. And, sure, a lot of disputes arise in the situation of inheritance, especially indivisible property. When negotiations reach a deadlock, and there is no solution for years, many houses become or remain abandoned.
This problem has existed in Portugal for a long time. And the government is gradually working to help resolve the issue and ensure the return of real estate to use.
The picture shows a beautiful abandoned house on one of the streets of Ericeira, not far from the city center.
Quality of infrastructure and housing in the city center
Many “old” cities face this problem. The center is beautiful and authentic, but after many centuries, the houses and infrastructure have ceased to meet modern requirements. For example, if the house does not have an elevator or updated electrics, the roof needs to be replaced, and fiber optics are not installed, selling real estate, even in the center, at a good price can be a problem. In addition, there may not be convenient shops near you (especially large supermarkets), punctual transport that will help you climb one of the 7 hills of Lisbon where you live; and you don’t have parking in the house, but you still have to fight for a place on the street... All that, and not just the high cost, can force people to look for housing for rent and purchase on the outskirts.
Homeowners in the center are waiting for the opportunity to sell the property at a high price but face the reality that new buildings, albeit on the outskirts, are more in line with the concepts of "price-quality".
How does Portugal solve the problem of abandoned housing?
I must say that the government of Portugal, like the governments of other EU countries, is highly concerned about the situation with empty houses because there are also related problems:
- Homeless problem. According to some estimates, about 80 empty houses are now for every 1 homeless person in Portugal.
- The difficulty for citizens and immigrants to rent affordable housing where the family will not be forced to spend most of their income on rent or will be able to at least have separate rooms for different generations of the family. You can dive deeper into this topic in this article.
Recently, the government has taken new steps to solve all the problems simultaneously. For example, owners of vacant homes may be required to rent out their unused property or start using it within 100 days, otherwise, they will be forced. All initiatives can be explored here.
Several municipalities are tripling the annual IMI tax rates to encourage owners to do something about vacant properties. You can read more in this article.
Some consider one of the non-trivial and indirect solutions to the problem to be the development of the Erasmus student program, which creates even more demand in the rental market, making the market more attractive to landlords.
Not only houses without people, people without a home: the problem of the homeless in Portugal
Indeed, walking along the streets of Lisbon and Porto, you notice people who do not have a home. They can wander around with shopping carts where they carry their things, hide in cardboard boxes or summer tents, and beg from you. And there are those whom you cannot even distinguish from young office workers. Some young people end up on the street because their minimum salary is insufficient to cover their rent. According to our observations, there are more homeless people in Porto.
The total number of people without a home in Portugal, according to statistics collected last time in 2020, is about 7100 people. This is 0.07% of the total number of residents.
In February 2020, the EU noted that the “lack of affordable housing is a social problem in Portugal.”
This problem leads many people and some parties to make rather radical propositions for private property within abandoned buildings.
There are many exciting projects in the EU and directly in Portugal aimed at fighting poverty and providing homes for the homeless. However, there would be enough material for a new article, so here we will only give names and links to exciting projects you can study independently.
- EU launches anti-homelessness platform in 2021;
- The Portuguese project “Housing First” has already found housing for 300 homeless people and is also helping with socialization and reintegration into society;
- There are also smaller projects in Portugal, such as “É uma mesa”. This pizzeria helps the homeless by hiring, training, and advising them. In 2021, they received a silver medal in the End Homelessness Prize on the same EU platform from the first point.
The picture shows the “distribution of the homeless” across the EU in 2020 (the number of homeless people per 10,000 population). Portugal, among others, is far from the first place, but the problem still exists. And we hope the government will find a way to improve the situation, including painlessly for the owners of abandoned houses and without violating the right to private property.
Translated from Ukrainian by Rodion Shkurko